Wednesday 27 April 2011 06.17 EDT
First published on Wednesday 27 April 2011 06.17 EDT

Soaring demand for smartphones such as Apple's iPhone helped the British chip designer ARM Holdings beat forecasts with a 35% rise in first-quarter pre-tax profits to £50.8m compared with the same time last year on the back of revenues up 29% to £185.5m.

The Cambridge-based company, which licenses its designs to many of the top smartphone and tablet makers including Apple, Samsung Electronics, Qualcomm and Texas Instruments, said it expected revenue for the full year to be "at least" in line with market expectations, despite uncertainty about the impact of the Japanese earthquake on the semiconductor and smartphone industries. That effect will not become clear until the third quarter results as ARM reports its arrears of orders.

Roughly 1.15bn ARM architecture chips for mobile devices, including smartphones and tablets, were shipped in the quarter ending on 31 March. Research group Gartner predicts the smartphone market will grow by 58% this year.

"Shipments of ARM-processor based chips increased 33% on the same period last year driven by growth in smartphones, tablets, digital TVs and microcontrollers," said Warren East, the chief executive.

The company is also benefiting doubly as smartphone makers add extra processing capability into handsets: in the quarter, there were an average of 2.5 ARM chips per mobile handset, compared with 2.1 a year ago.

ARM provides the designs for processor chips but does not make them, avoiding the huge costs of building chip foundries. It has benefited strongly from the explosive growth in sales of smartphones, which bring computing capabilities on the move via the mobile network: they have now begun to outsell PCs on a quarterly basis. Intel, which makes processors for PCs, has so far been unable to match ARM's low-power designs with its own chips, meaning that phone makers have shunned its designs – although the company said it was aiming to have a new generation of Intel chips in smartphones by the end of the year, and earlier in April unveiled plans for a new generation of low-power chips.

ARM said it had also begun to grow its non mobile-focused business, with 700m of its designs shipped to digital TVs, disk drives and microcontrollers for controlling machinery.

Shares in ARM have risen 48% since the start of 2011, and it trades on a multiple of 58 times 2011's forecast earnings.

It was also boosted by news earlier in the month that Microsoft was well advanced in developing its Windows operating system for ARM processors, a move that was announced in January. Microsoft sees smartphones and tablets as crucial to its future, and its forthcoming Windows 8 – expected some time next year – will be able to run on ARM processors.

Operating expenses rose by £11m to £60.3m mainly due, it said, to "increased investment in the development of next-generation technology".